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Keeping it Cool in the Arizona Sun

Keeping it Cool in the Arizona Sun

In the HVACR wholesale distribution business, Arizona is a hot market — and not only because the average July daily temperature in Phoenix is 105 degrees. As the state's population swelled from 2.7 million people in 1980 to 6.1 million in 2006, the HVACR market grew accordingly with just about every national and regional wholesale distributor flocking to the region and competing for the business of residential and commercial contractors and engineers.

While other distributors have come to Arizona seeking to stake a claim in the market, Phoenix Wholesale has been a steady presence in the state for nearly 30 years. The Phoenix-based HVACR distributor has nine locations Arizona. Together with its sister company, Canyon Pipe & Supply Inc., a plumbing distributor, the business is a well-regarded resource featuring an experienced and savvy staff that is known for taking care of customers.

Carl Formento started Phoenix Wholesale in 1981, while his son, Nick Formento Sr., established Canyon Pipe & Supply Inc. The two companies operated separately but were under the same roof — a 10,000-square-foot facility in Phoenix with no loading dock, recalls Nick Formento II, current president of Phoenix Wholesale and Canyon Pipe & Supply Inc. In 1983, the Formentos established NCI, which serves as the parent company for both the HVACR and plumbing divisions.

With roots firmly planted in Arizona, customers know they can count on Phoenix Wholesale as their HVACR wholesale supplier. "We have longevity here in this market," says Nick Formento II, who took over as president from his father in 2007. Customers appreciate knowing that they'll work with employees who both understand and appreciate them. The average tenure of a Phoenix Wholesale employee is 10 years. "In Arizona, that's a big deal," Nick Formento II says. "We've always been a company dedicated to service." Formento II recalls his father lugging copper tubing from their supply house to a contractor's job across the street because they didn't yet have a forklift. Dedication to customers began at the top.

Today, Phoenix Wholesale has grown from that small facility, occupying a 29,000-square- foot facility — with a loading dock — on three acres in Tempe, AZ. It operates nine locations with a mix of HVACR and plumbing that are spread throughout the state — from Flagstaff in the north to Tucson in the south. Because of the distance between branches, branch managers manage their inventories for their individual locations, relying on a transfer system for some of the other supplies that they may need for customers. A transfer truck makes deliveries weekly to branches to fill any shortages, Nick Formento II says. While the transfer system may not be perfect, it has proven over the years to be the most cost-effective method to serve customers, he adds.

The branches have the authority to order what they need, when they need it, which speaks to the independence they have and the trust that Phoenix Wholesale senior management places on their branch managers and staff. Nick Formento II joined the company in 1992 and has worked in every job throughout the company, including a stint as branch manager. He remembers what he liked about being a branch manager and what he didn't like. "I wasn’t micromanaged," and that, he says, allowed him the freedom to run the branch largely as he saw fit for that particular market. That empowerment made him a better leader.

"There's no forward thinking when you're micromanaged," he says.

"We are not a company that micromanages." Branch managers largely operate as entrepreneurs, responsible for inventory, turns, personnel and core customers in their markets. Nick Formento II says the branch managers are seasoned and understand the guiding philosophy that drives the business forward, and most worked for Carl Formento, who retired in 1992.

At the Phoenix Wholesale headquarters, a senior management team helps guide the branches. The management team is a "very valuable part of our business," Nick Formento II says. Six members make up the management team — a representative group that comprises plumbing and HVACR, as well as the controller and general manager and president. "It's very representative with experience in all aspects of what we do," he says. "Their perspectives help to give our company a better idea of the needs of branches and customers and what we can do to improve our operations. It’s a very effective way to run and manage a wholesale company."

Nick Formento Sr. retired as president in 2007, but he remains as the company CEO and is actively involved in business reviews and quarterly meetings. Nick Formento II says his father's greatest role is serving as a mentor to himself and other members of the management team.

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As a family-run, independent HVACR wholesale distributor, its approximately 160 employees have a greater sense of belonging. "They like to be part of the team," Nick Formento II says. Employees have opportunities to grow their careers that they may not have with larger organizations. Formento II also points to the company's health-care and wellness programs. "We don't just look at how we can further the company, but how we can help our people. At the end of the day, we're only as good as our people."

To keep employees on the cutting edge of what's happening in HVACR, management encourages them to see the manufacturing process behind the products they sell. That means trips to factories or visits from factory reps to Phoenix Wholesale's branches. One of the branches has a 2,000-square-foot training facility for contractor training. Product demonstrations are a staple of training for employees and contractors.

Phoenix Wholesale used to concentrate heavily on the growing residential market in Arizona. In recent years, the company decided to get more involved in the commercial side. Nick Formento II says the plumbing side of the business had traditionally done work on the commercial side, "so it made sense as we got plumbing jobs to share that information with the HVACR side." Phoenix Wholesale hired a commercial sales manager and a sales team to work directly on the commercial side and work with the contractors. "We had always had a full-time person calling on the engineers to get equipment specified, so it made sense to round it out with the contractors."

Diversifying the business helped Phoenix Wholesale during the recession, as housing starts plummeted. "When you go from 40,000 starts to 8,000 starts, that's a considerable decrease," he notes. "We were already diversified in all aspects of the HVACR and plumbing worlds, so it was easy for us to shift gears."

Those strong ties to the local contractor and engineering communities have paid off. "The competition is very strong," Nick Formento II says. "In Arizona, we have every national chain that is in our industry. We could have seven wholesalers competing with us on any given job. That makes it tough."

While forced air is the major part of the Phoenix Wholesale business, surprisingly its northern branches do a fair amount of heating business, too, as temperatures fall in the mountains during winter. "Most people don't realize that we get a considerable amount of snow."

Phoenix Wholesale's embrace of technology to help run the business also has been an asset to the company, he says. They've used Eclipse since it arrived in the wholesale market, he says. "We are a highly technological company and very automated.” The warehouses pull stock by Palm Pilots, not tickets. After a customer generates an order, that order goes to the Palm Pilot, which tells the warehouse employee where to pull it. The company also does imaging of invoices. "So the days of rows and rows of filing cabinets are gone, which is great," Nick Formento II says. "What a time killer that used to be. Now you can bring up a ticket, and the image is there. You print a copy of it."

As the company has grown, marketing has become a bigger part of the business. In fact, Phoenix Wholesale is the only Arizona-based HVACR wholesale distributor with a full-time marketing department, Nick Formento II notes. "It has now become a major driving force for the success of our company in 2009 and 2010," he says. Phoenix Wholesale does specialized marketing for its contractor customers, actively working with them on their marketing ideas. "If they have an idea, they come to us, and we'll devise the marketing plans for them." Special marketing promotions also are a regular part of the business. Phoenix Wholesale rewards its contractors for their business with trips and other promotions that may include flower deliveries, steaks or grills.

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Nick Formento II also speaks highly about the company's involvement as a member of WIT & Co., a buying group of independent HVACR and plumbing distributors. Today, there are more than 92 member of the buying group. "WIT is definitely a very valuable part of our business." Nick Formento Sr. serves on its board of directors, and Nick II is involved in the organization's plumbing committee. Not only does the buying group allow Phoenix Wholesale to remain competitive with the market, but the sharing of best practices and visiting other facilities of distributors provides everyone with valuable insights, he says.

A visit to a Phoenix Wholesale location during the winter months would certainly be welcome for the WIT members who hail from colder climates. The warm summer weather would be nice, but they also would get to see an operation that has created a culture of customer service that brings together technology to get orders right, and employees who have the people skills, industry knowledge and strong roots in the community to make it easy for customers. And that's pretty cool.

Michael Maynard is a business writer based in Providence, RI. He writes frequently on HVACR, construction and architecture issues. Contact him at [email protected].

Best Practice

To drive a consistent sales and marketing message to meet diverse Arizona markets and addressing contractor needs for both residential and commercial segments.

Definition and Example: Phoenix Wholesale's customers as well as valued employees have an understanding that by purchasing products and services from the company, you get much more than just those items. Our dealer program is a reflection of this experience. It brings relevant, value-added proposals over and above normal expectations. Within our program is our marketing campaign, which is both consistent in theme and message as well as flexible. We've recognized the need for a direct-to-the-end consumer/retail selling approach as well as traditional distributor/contractor methods. Our highly successful coloring campaign for our customers' kids, annual rose promotion for our customers' significant other as well as our just completed Swing Into Spring campaign are a few examples. Additionally, we just wrapped up our well-received "Rebate by the Ton" campaign offering generous spiffs to our commercial customers.

Significance: Taking a two-pronged marketing approach to both the contractor and end consumer ensures us that we are delivering a consistent message to the market; whether it's in Flagstaff, Show Low or the greater Phoenix metro area, the footprint also provides us with a means to better control costs and track effectiveness.

Benefits: For our committed dealers, we provide a means to help them take advantage of our relatively generous pool of resources for our state for marketing. Also, our dealer marketing programs encourage participation at many levels to reflect not only the size of the business but the timing and market conditions as well.

Procedure: Taking a doctor/patient approach, PWI sales associates must gain the trust and confidence of our customers to better identify their specific marketing wants and needs, and where appropriate, make recommendations. In some cases, sales management will get involved.

People Involved: Sales management, branch managers, inside and outside sales.

Timing: Timed primarily to coincide with our cooling season, we roll out both the dealer programs and end-user marketing efforts in late winter, typically January or February. However, we do have significant market share in our higher elevation branches, which are oriented to address the heating season and, as such, we construct marketing campaigns when and where necessary.

Cost: Our relationships with the Embassy Group, Ruud Air Conditioning and our other valued vendors help offset significant investments in our marketing campaigns. We establish a marketing budget well before the end of the calendar year, evaluate our wins and losses and adjust accordingly. PWI invests a significant amount of resources in our marketing department. This is a reflection that management recognizes to be vital to the continued growth of our company.

Other Considerations: We take a professional retailing approach to a wholesale industry, which traditionally has invested very little relative to the size of the business. Also, with our sister wholesale plumbing company, Canyon Pipe, we can cross-market to a broader customer base and offer them significant advantages in buying HVACR as well.

Contact: Gina Hernandez, Marketing Manager, (602) 353-4137

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